Ghana loses US$190m U.S. grant over cancelled power contract

The United States has cancelled US$190 million in grants to Ghana under the “Power Africa” initiative in response to the Ghanaian government’s termination of a contract with a private utility provider, the U.S. embassy has confirmed.

The Millennium Challenge Corporation (MCC), a U.S. government foreign assistance agency, agreed in 2014 to provide US$498 million in funding to Ghana’s power sector to help stimulate further private investment.

The financing was the largest by the United States under Power Africa, which was launched in 2013 by then president Barack Obama and aims to bring electricity to tens of millions of households in Africa.

The flagship reform under the agreement involved handing over operations at state-run Electricity Company of Ghana (ECG) in March to Ghana Power Distribution Services (PDS), a consortium led by Philippine electricity company Meralco.

But Ghana’s finance minister informed U.S. officials on Saturday that the government was cancelling the 20-year concession it had signed with PDS, saying payment guarantees provided were not satisfactory. Indeed, Ghana’s government had, a couple of months ago discovered that the guarantees were fraudulent, a fact confirmed by subsequent investigations.

In a statement on Tuesday, the U.S. embassy said the decision to terminate the contract was unjustified and that the MCC was therefore cancelling US$190 million in grants.

The remaining US$308 million will still be disbursed. Actually much of this has already been disbursed.

“The United States underscores the importance of contract sanctity as essential to a conducive investment climate and a pre-condition for inclusive economic growth,” it said.

Ghana’s Information Minister Kojo Oppong Nkrumah told reporters on Wednesday that the U.S. announcement did not represent “a crisis of confidence” between the two governments.

“It has been a difference in opinion which we have mutually agreed to respect,” he said.

However the general opinion in Ghana is that the grants have been cancelled because the US government does not trust the integrity of the process proposed by the Ghana government to replace PDS with another concessionaire using a restricted tender in a process to be completed within two months.

That position is being actively supported by Ghana’s political opposition which is as expected, making the most of a fiasco that casts doubt on the competence of top government appointed officials to do due diligence as required of them and also the integrity of the Ghanaian partners who are strongly suspected to have been aware of the fraudulent nature of the guarantees provided.

Meralco did not immediately respond to a request for comment.